Around the Globe 10.31.2013

U.S. jobless claims fall in better news for labor market | Reuters.

Initial Jobless Claims Through 10.26.2013

The mainstream financial enjoys reporting simplistic explanations for complex trends.  The MFP explanation of the month is the “shutdown.”  Negative data is explained away by the shutdown, while positive data is used to reinforce the recovery narrative.  A more nuanced reading of the data reveals two facts.  First, initial unemployment claims have dropped to business cycle lows.  Second, claims had begun rising in the beginning of September long before the latest government manufactured crisis.

The pace of layoffs has slowed throughout 2013 after remaining static through 2012.  it seems that initial claims have finally bottomed out over four years since the “end” of the recession, but hiring remains weak.  Last month a mere 148,000 jobs were created well under the 200,000 necessary to maintain pace with new entrants to the labor force.

Home prices are still affordable, says Shiller.

Housing Affordbability Index



Shiller does not believe that the country is in the midst of a housing bubble and this is his thinking:

“I define a bubble as a time when people have extravagant expectations, and the expectations are driving home price increases,” said Robert Shiller, Case-Shiller index co-founder and Yale University professor of economics, in an interview with CNBC. “We don’t have the mindset of earlier this century.”

What Shiller is saying is that price expectations are different now than in 2006.  This is true, but the background economic picture has also changed with these expectations.  In 2006, people believed that house prices will continue rising as rates remained low and consumer incomes were growing.  Today, people believe that house prices will continue rising despite rising rates and stagnant consumer incomes.  Isn’t today’s market just as irrational as 2006 once we take those facts into account?

These headwinds will buffet housing going forward resulting in declining sales.  Moreover, once investors realize that there is no money to be made in renting hundreds of single family home due to the lack of economies of scale in the sector, expect a housing correction to a lower sales pace at lower prices.

Germany Hits Back at U.S. Over Economic Criticism –

U.S. Treasury Blasts Germany’s Economic Policies –

America’s misplaced lecture to Germany | The World.

Euro Fair Value at 1.37

An unbalanced economy is a weak economy.  The old cliché is, “Neither a borrower or lender shall be,” not “A borrower shall not be, but lenders are fine.”

Export-driven economies rely on a weak currency to flood the market with their goods and thereby place two burdens upon their populations.  The cheap currency makes imports more expensive, so consumers in export-driven economies cannot afford as much.  Lower consumption levels equate to lower employment levels as the infrastructure of consumption remains lacking.

Prices for consumer goods are much higher in export countries.  In the U.S., you can buy a nice HDTV and a surround sound system for about $1500.  In Germany or the Netherlands, you couldn’t even buy the HDTV for that price.  As a consequence, the retail sector remains small and labor force participation rates remain low.

As the chart illustrates, Germany receives a very nice benefit from belonging to a currency zone with more  unproductive members, and those countries pay a steep premium to remain in the Eurozone.  Eventually, someone will figure out that he could reverse his country’s fortunes rapidly by reverting to its national currency.  Until then, the periphery will struggle, and breakup risk will persist.  He who exits first, exits best.

ECB easing hopes help stocks, bonds deflect Fed hit | Reuters.

Euro-Area Inflation Rate Falls to Four-Year Low – Bloomberg.

Fed-ECB Balance Sheet Ratio versus USDEUR

Draghi better fire up the printing press  before it is too late. The Eurozone “Recovery” has been led by a surge in exports from the periphery.  While the employment picture is still deteriorating, at least higher export orders were a bright spot.  Unfortunately, this brief upswing in exports is about to reverse course.  The Euro has been depreciating as the ECB neglects to match the Fed, the BoJ and the BoE in currency creation.  Our chart illustrates the relationship between the Fed and ECB balance sheets and the USDEUR exchange rate.  The present ratio indicates a rate of $1.54.  The strong euro has already begun to weigh on PMIs and will filter down to GDP in due course.



Around the Globe 08.15.2013

Wal-Mart Deepens Gloom Around Retailers –

Wal-Mart sales slip, outlook ‘cautious’.

Wal-Mart Is Pinched by the Bottom of the Pyramid – Businessweek.

WMT Revenue Growth

Chart published on ZeroHedge from @notjimcramer

Money printing inflates asset prices, which is a boon for large corporations and the rich.  Simultaneously, asset price inflation depresses business start-up and expansion opportunities by increasing their risk.  Entrepreneurs must pay more for assets, and cheaper interest rates are unable to ameliorate higher prices; hence, many new businesses are never started.

This is important because small businesses are responsible for most of the job growth in the United States.  Current Fed policies, while helping the rich, are actually causing the labor recession particularly at the lower end of the market.  The labor market will not improve until the money printing ceases allowing asset markets to clear at lower prices.  In the meantime, Wal-Mart will continue to struggle.

Jobless Claims in U.S. Decline to Lowest Level Since 2007 – Bloomberg.

U.S. Jobless Claims Fall to Lowest Level Since October 2007 –

US claims plunge to lowest since late 2007; prices dormant.

The really bad news behind the jobless claims drop.

Initial Unemployment Claims Through 08.08.2013

“Wait a second,” you say, “this talk of a labor market recession is crazy.  Initial unemployment claims dropped to 320,000 for the latest week, which is the lowest level since before the Great Recession. The mainstream media is telling me that this signifies strength in the labor market.”

Initial claims have fallen, but so is income.  Wages decreased 0.5% from June to July based on lower hourly rates and fewer hours.  As long as the labor market remains sick, the prospects for vast majority of Americans remain bleak.  Just ask Wal-Mart.

Big, Bad Taper Drives Investor Jitters – MoneyBeat – WSJ.

Market valuation looks like 2007 all over again: Economist.

Fed Balance Sheet vs. SP500 07.2013

The financial press has become increasingly Fed-centric in the past few years.  Examining the chart above, you can see why this has occurred.  The Fed’s actions have clearly lifted stock prices, but the Fed is not the sole market mover.  Every bad day in the market since May has been blamed on the taper tantrum, but there are other factors influencing the market.  S&P 500 revenues are flat at best and may even be decreasing at this juncture in the business cycle, but bulls have little reason to fret.  As long as the money printing continues, the market will continue its fitful rise.

European Recovery Means Little for Jobless Generation – Bloomberg.

European Youth Unemployment

Cheap liquidity in Europe has had a similar effect in the Eurozone labor market, as the Fed’s action have had in the United States.  Easy money policies have temporarily saved the bacon of the banks and sovereigns, but at the cost of astounding youth unemployment rates.  Hey, at least they saved the euro.

Around the Globe 07.18.2013

Leading Economic Indicators Index in U.S. Was Unchanged – Bloomberg.

Conference Board Leading Economic Indicators 07.2013

This chart illustrates all you need to know about the recovery.  Over four years after the trough, the leading economic indicator index is still way below its pre-GFC highs.  Moreover, the index  has only advanced to 2003 levels.  Real economic growth is barely keeping apace of the population increase.  As long as the economy remains this weak, a shock, like a Chinese recession or more Middle East drama,  can easily plunge the country back into recession.

Easy money is the opiate of the American economy: Morici.

Fed QE versus SP500 Fed QE versus SP500 Through July 2013

Cheap money makes the world economy go round.  While the Fed is the most watched central bank, the coordination of the group’s money printing is what matters.  If any of the major central banks tighten its money supply, all markets will suffer.  This is exactly what happened during the Chinese Cash Crunch:

SPY 07.18.2013 China 7 Day Repo Rate 07.18.2013

Schaeuble Opens Door to Greek Debt Relief Tied to Targets – Bloomberg.

German finance minister chides Greeks for seeking debt cut | Reuters.

German Minister Visits, Praises Greece –

Wolfgang Schaeuble“Nobody who knows anything about the issue at hand is talking seriously about a further cut for private investors,” he said earlier on German Inforadio. “Rather, it’s about the fact that it’s possible that Greece after the end of the current program next year will need another program.” (My emphasis)

The quote is from the Bloomberg article, and it shows the German strategy for Greece.  Private bondholders will probably not take another haircut, but there will be a fourth bailout, as readers of Dareconomics have understood since the 3rd bailout was pieced together at the end of 2012.

The fourth bailout will include debt forgiveness by the EU and probably a deposit tax on the Greek financial system, and it will not be negotiated until after German elections.

US mortgage applications slip anew; soaring rates bite.

Mortgage Applications 07.17.2013

From ZeroHedge

Mortgage applications continue their descent and are bringing housing activity down with them.  The mainstream media is still using quotes from real estate industry shills to support its housing recovery narrative.  How much worse does the data have to be to kill the narrative once and for all?

Crude Reaches 15-Month High as Jobless Claims Decline – Bloomberg.

Gasoline at the pump still rising, but the peak is in sight.

Crude reality: Oil could crimp rally.

Watch out for the gasoline ‘wild card’: Trader.

Gasoline Prices Through 07.15.2013

Whenever gasoline prices rise too high, they choke economic growth and stock market gains.  The magic number seems to be about $3.80/gallon.  That’s just about where we are today with further price increases between now and the end of the summer on increased demand and refinery shutdowns.

U.S. Jobless Claims Decline on Auto Factory Shutdowns – Bloomberg.

Jobless claims fall sharply in positive sign for hiring | Reuters.

US jobless claims drop sharply, raise hopes for labor market.

U.S. Jobless Claims Fall Sharply –

Jobless Claims 07.13.2013

The mainstream media is in the business of attracting eyes.  The owners of those eyes click prefer watching and reading good news, so there is a bias towards presenting economic data with a positive spin:

“Jobless Claims Fall Sharply in Positive Sign for Hiring”

“US Jobless Claims Drop Sharply, Raise Hopes for Labor Market”

Unfortunately, spinning a story renders it inaccurate.  Jobless claims did not drop sharply, but the seasonal adjustment makes them seem like they did.  Rather, the effects of accounting for summer factory shutdowns make July’s data more volatile.

A reduction in jobless claims means that less people were fired.  Note the long-term trend.  Jobless claims are still running above pre-2008 levels despite the “recovery,” and if our chart accounted for today’s smaller workforce the numbers would be markedly worse.

Right on time, here is today’s Chart of Truth illustrating the true health of the labor market:

June Full vs Part Time Jobs

Around the Globe 07.11.2013

Will Investors Finally Buy Bernanke’s Explanation?.

Bernanke Supports Continuing Stimulus Amid Debate Over QE – Bloomberg.

Fed Affirms Easy-Money Tilt –

SP500 07.11.2013

The recent market turmoil ended two weeks ago replaced by this rally which pushed the S&P 500 to a record level.  Commentators place too much significance on what the Fed says but not what it does.  Printing trillions of dollars will generally lead to rising markets, but talking about programs or their end is just talk.  There will be short-term moves because of the talk, but the long term remains unaffected.  Check out the chart for the S&p 500 and notice that it has been rising for over two weeks.  Could the rally be based just on talk or is something else occurring? Read the next passage for the answer. 

China Could ‘Shock’ Markets With Big GDP Miss.

China 7 Day Repo Rate 07.11.2013

Markets should not be shocked about China missing its GDP target.  In fact, if the country hits the target, the numbers have been fudged.  Too many other indicators point to a slowdown in growth including imports, exports, electricity usage and transportation patterns. 

On the plus side, the Chinese Cash Crunch has abated, and world stock markets have rallied because extra liquidity is entering the system.  The PBOC giveth, and the PBOC taketh away.  Chinese liquidity issues will continue to affect world markets for the foreseeable future.   

U.S. Jobless Claims Rise by 16,000 –

Jobless Claims in U.S. Unexpectedly Rise to Two-Month High – Bloomberg.

Jobless claims rise, but labor recovery grinds on | Reuters.

Initial Unemployment Claims Through 07.06.2013

Even though jobless claims rose, the mainstream media is spinning the story so that it conforms to its recovery narrative.  A blip upwards in claims is insignificant.  The real story here is that the labor market remains stagnant.  We discussed the poor quality of jobs last week, so let’s focus on the actual quantity.  Today’s chart of truth shows that number of people working has just recovered to the 2006 level when the country had a smaller population and workforce:

US Employed Workers 07.2013

U.S. Mortgage Rates for 30-Year Loans Rise to 2-Year High – Bloomberg.

Mortgage Rates 07.11.2013

Chart courtesy of ZeroHedge

The real estate industry shills that are used as sources for these types of articles interpret every move as supporting the housing market.  In reality, the rise in mortgage rates means that you get about one-quarter to one-third less house than you would before the rise:

House Affordability 06.26.2013

Chart courtesy of ZeroHedge


The flippers are the group driving price increases.  At these rates, who will they flip the houses to?

New aid gives Greece summer respite before showdown | Reuters.

Greek Unemployment Rate 07.2013

This aid package should get Greece through German elections.  Afterwards, Greece will either be the recipient of loan forgiveness by its fellow Eurozone members, or it will be “Cyprused.” A combination of both choices could be used, too.  By “Cyprused” I mean that the banks will be raided to pay for the rest of the Greek bailout.  The seeds have already been planted for a depositor haircut.  The Greeks took over the solvent Greek subsidiaries of Cypriot banks, and Greece’s own bank restructuring has been on hold since December.  When the troika comes to take you savings, my Hellenes, don’t say that you have not been warned. 

Portugal president wants ‘salvation’ deal, including opposition | Reuters.

Anibal Cavaco Silva

From wikipedia

What’s the Portuguese President’s angle? If he had just approved the cabinet reshuffle, it’s business as usual.  For some reason, he decided that he wants the opposition to approve the reshuffle, too, and has offered the sweetener of early elections in 2014 rather than 2015.  He is risking the viability of the current government, but it is unclear what the reward for this maneuver is.